Treasury withholds $24 million in payments to Bank of America, Chase & Wells Fargo

The Treasury Department announced on Thursday that it will withhold incentive payments to Bank of America, J.P. Morgan Chase and Wells Fargo until they substantially improve their performance in the federal Home Affordable Modification Program, known as HAMP.

Ocwen Loan Servicing was also cited but will continue receiving payments. Its results were affected because it started servicing a large pool of mortgages while under review.

Though the administration has talked tough in the past, this is the first time it is withholding payments. Servicers are eligible for up to $4,500 over three years if they put borrowers into sustainable modified mortgages.

So far, the administration has paid $1.3 billion in incentive payments -- paid for with funds from the 2008 TARP law -- to 84 servicers. It has used about $2 billion of the $46 billion in TARP funds dedicated to homeowner help.

The Treasury Department reported yesterday that just over 29,000 homeowners were approved for HAMP trial loan modifications in March, while just under 29,000 were approved for permanent modifications.

The stricter guidelines have made the program more orderly, but also may have made it more difficult for borrowers to get admitted to the program. With only 700,000 permanent modifications approved to date and only 30,000 more approved each month, it appears certain the program will fall far short of its goal of helping 3-4 million homeowners avoid foreclosure by the time it expires 18 months from now.